APICS News

Considering the Total Cost of Offshoring

By APICS Staff | 12 | 10 | May 15, 2012

Many manufacturers are considering the decision to cease overseas production and return to domestic manufacturing. Rising wages in countries such as China are not the only reason for this, as an article on CFO.com explores. Rather, the total cost of doing business offshore needs to be considered, which includes the following costs that may not always be readily apparent. Logistics. Even experienced supply chain and operations management professionals might overlook some of the potential risks and hidden costs of doing business overseas. Sources of less-than-obvious costs include freight forwarding, duties, insurance, labor disruptions, fuel price volatility, expediting, and customs inspections.

Inventory. Managing inventory abroad is deceptively challenging. The levels required to support offshore sources almost always are higher than estimated. Disruptions such as fluctuating customer demand, supplier delays, weather, and customs seizures can greatly affect lead times, requiring that additional inventory be kept as a buffer.

Quality. While it’s usually not true that goods produced offshore are of lesser quality than domestic goods, the greater production distances means rapidly resolving quality issues likely requires additional costs.

Other potential hazards when calculating the total cost of offshore production include language and culture barriers, time zone differences, and vastly larger production and inventory sizes and complexity.

Report Examines the Current State of US Manufacturing

The Brookings Institution, a nonprofit public policy research organization, has published a report on the current state of US manufacturing, which examines the industry’s changing nature in the last few years and current trends in manufacturing geographies. The Washington Postbreaks down a few of the survey’s most interesting findings.

Manufacturing jobs are on the rise since 2010, but the 350,000-job gain is very modest in comparison to a three-decade slide, when the United States lost 7.9 million manufacturing jobs since 1979.

The nature of manufacturing also is shifting, as food production has become the number-one manufacturing job. Metal products, electronics, machinery, and motor vehicles and parts round out the top five.

The majority of manufacturing jobs__nearly 80 percent__are clustered in large metropolitan areas. Plus, certain cities tend to specialize in a particular type of manufacturing. The jobs most likely to be located in cities are computers and electronics, transportation equipment, low-wage manufacturing, chemicals, machinery, and food production.

Finally, the Northeast and Midwest no longer appear to be shedding jobs to the South and West, as they were in the 1980s and 90s. During the recession, all regions lost jobs at roughly equal rates, and since 2010, the Midwest is adding manufacturing jobs at twice the rate of the rest of the country.

US Helium Supplies Dangerously Low

A 1996 law is at least partially responsible for a looming helium shortage in the United States, the Washington Post reports. A helium shortage would affect more than party supply stores, as uses for the gas are wide-ranged and include medical scanners, welding, and the production of optical fibers and modern televisions.

Widespread helium use can be traced back to the 1920s, when the government created a national helium program to explore the potential military applications of the gas. The Federal Helium Reserve was opened in the 1960s, an 11,000-acre site in the Great Plains containing helium-rich minerals. But by 1996, helium technology seemed less promising, and Congress passed the Helium Privatization Act, which would sell off all government helium by 2014. Federally owned helium sells for about half of what it would on the open market.

To make matters worse, operational funding for the reserve may run out in mid-2013. If that were to occur, a large portion of the world’s helium supply would be locked in the reservoir. A bill is in the works to change how the government sells helium, sponsored by US Senators Jeff Bingaman and John Barrasso. “If Congress does not act, the helium program will disappear altogether in less than three years, leaving our hospitals, national labs, domestic manufacturers and helium producers without an adequate supply,” Bingaman says.

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